Troubled Relationships under the GATS: Tensions between ......the border while service suppliers and consumers do not. Mode 2 (Article I:2(b)) is the supply of a service ‘in the

Troubled Relationships under the GATS:Tensions between Market Access (ArticleXVI), National Treatment (Article XVII), andDomestic Regulation (Article VI)

GILLES MULLER*

New York University School of Law

Abstract: The General Agreement on Trade in Services (GATS) was adopted inorder to establish meaningful liberalization rules, while preserving the right ofMembers to regulate. To that end, three provisions form the centerpiece ofliberalization: market access (Article XVI GATS), national treatment (ArticleXVII GATS), and domestic regulation (Article VI GATS). Although theseprovisions contain different obligations, in certain conditions they can overlap.How this issue is resolved could undermine the delicate balance betweenliberalization and the right to regulate. As the GATS provides no guidance, thetask of determining the applicable rules has been delegated to the World TradeOrganization (WTO) adjudicating bodies. This paper examines how the threeprovisions have been interpreted, and analyzes the most applicable way toaddress the diversity of barriers to trade in services.

1. Introduction

Since the advent of the General Agreement on Tariffs and Trade (GATT) in 1948,tariffs have fallen; consequently, attention has progressively shifted to other typesof instruments such as non-tariff barriers (NTBs) and barriers to trade in services.This, in turn, has led to calls for greater attention to be given to internal regulationsthat constitute barriers to international trade,1 particularly trade in services.

Regulatory intervention in the services market is particularly important. In someinstances, consumers cannot assess the quality of service, and regulation aims toprevent suppliers from abusing information asymmetry. It can also minimize nega-tive externalities, where third parties (rather than suppliers or consumers) decide onthe cost of supply of certain services. Regulation enables governments to ensurethat services are equally available to all citizens. In some cases, it is used tofurther policy objectives (such as job creation or access to the labor market);

* Email: [email protected] Trade Organization (2012).

World Trade Review (2017), 16: 3, 449–474© G. Muller doi:10.1017/S1474745616000471

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while in others, it aims to maintain order (by protecting the public from fraud, taxevasion, or anti-competitive practice). Finally, effective regulation in the liberaliza-tion of service sectors can help to achieve gains without compromising quality orother policy objectives.

At the same time, ‘behind the border’ measures can have a negative impact oninternational trade. Discriminatory regulations can favor domestic services andsuppliers of services over their foreign equivalents. Measures can also take theform of origin neutral quantitative restrictions that both impede entry into themarket, and protect incumbent suppliers from competition. Furthermore, tradein services can be affected by non-discriminatory domestic regulation that takesthe form of cumbersome and/or opaque licensing and qualification procedures,non-transparent criteria, and excessively burdensome and redundant requirements.Similarly, multiple regulatory systems and standards increase compliance costs andare a barrier to trade.2

The General Agreement on Trade in Services (GATS) came into force in 1995. Itspurpose was to establish a multilateral framework of principles and rules with aview to the expansion of trade in services under the conditions of progressiveliberalization (GATS Preamble, Rec. 1). At the same time, it recognized the rightof Members to regulate in order to meet national policy objectives (GATSPreamble, Rec. 3). The challenge therefore faced by the drafters of theAgreement was, on the one hand, to identify – among the wide range of internalregulations – measures that could be considered as trade restrictions and, on theother hand, to draw up liberalization rules that preserve the right of Members toregulate in order to meet their national policy objectives.

Three provisions were developed as the centerpieces of liberalization under theGATS. First, market access provisions (Article XVI GATS) list a series of (mostlyquantitative) discriminatory or non-discriminatory measures that affect entry andestablishment in the market and have a significant impact on market contestability.Second, national treatment (Article XVII GATS) concerns discriminatory measuresthat affect foreign services and service suppliers, and modify competition condi-tions in favor of domestic counterparts. Third, domestic regulation (Article VIGATS) ensures that non-discriminatory regulation serves legitimate policy objec-tives, and is not a form of protectionism. It also mitigates any unintended, trade-restrictive consequences of national differences in regulatory requirements andthe way they are administered.

On paper, the distinctions between market access provisions (Article XVI),national treatment (Article XVII), and domestic regulation measures (Article VI)appear straightforward. However, reality is more complex as the rules mayoverlap: a discriminatory quantitative restriction listed in Article XVI can alsofall under the scope of Article XVII; a non-discriminatory quantitative restriction

2WTO–WPDR (2012a).

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listed in Article XVI is also covered by Article VI; or a de facto or origin neutraldiscriminatory measure under Article XVII can also be considered as a domesticregulation under Article VI.

These overlaps could affect WTO Members’ right to regulate, as Articles XVI,XVII, and VI contain different obligations. Market access and national treatmentare aimed at the removal of measures covered by these provisions. Their violationcan only be justified for a limited number of reasons that are listed in Article XIVGATS. In contrast, the purpose of domestic regulation is the mitigation (rather thanthe removal) of measures that have a negative impact on trade. A violation of thisobligation can be justified for a non-exhaustive list of reasons. When there is anoverlap, market access and national treatment rules have more potential thandomestic regulation provisions to have an impact on the right of a WTOMember to regulate. For instance, a broad interpretation of the measures listedin Article XVI GATS could encroach on the scope of application of Article VIGATS, expose a wide range of WTOMembers’ internal regulations to an extensivetest, and affect their regulatory autonomy.

The GATS does not provide clear rules to resolve situations where there is aconflict between two applicable provisions. As a result, this task has been delegatedto WTO adjudicating bodies. Their decisions have provoked intense debate onthe scope of these provisions and their impact on the delicate balance that theAgreement seeks to strike between the liberalization of trade in services on theone hand, and the preservation of the right to regulate in order to meet nationalpolicy objectives on the other.

This paper discusses the interactions between Articles XVI, XVII, and VI GATS.It aims to determine the regime that is applicable to both discriminatory measuresand origin neutral measures that affect trade in services. It begins with an analysisof the relationship between market access provisions (Article XVI) and nationaltreatment (Article XVII). Then, it deals with interactions between market access(Article XVI) and domestic regulation measures (Article VI). Finally, it addressesthe relationship between national treatment (Article XVII) and domestic regulation(Article VI).

2. Market access (Article XVI) – national treatment (Article XVII)

2.1 Articles XVI–XVII GATS in a nutshell

Articles XVI and XVII are found in GATS Part III entitled ‘Specific Commitments’.Commitments are specific because each Member may choose to what extent theobligations contained in these provisions are applicable to them.

Article XVI GATS lists prohibited discriminatory and non-discriminatory mea-sures. More specifically, Article XVI:2 contains a list of measures that Membersshall not maintain in sectors where full market access commitments are undertaken.This list includes four types of quantitative restrictions: (a) limitations on the

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number of service suppliers; (b) limitations on the total value of service transactionsor assets; (c) limitations on the total number of service operations or on the total ofquantity of service output; and (d) limitations on the total number of naturalpersons that may be employed or that a service supplier may employ. It also listsother restrictions, such as: measures that restrict or require specific types of legalentity or joint venture, and limitations on the participation of foreign capital.

Unlike Article XVI, Article XVII GATS does not set out a list of prohibited mea-sures. Instead, it includes an obligation for Members to accord foreign services andservice suppliers ‘treatment no less favorable than it accords to its own like servicesand service suppliers’. Article XVII:2 specifies that this obligation covers ‘formallyidentical treatment or formally different treatment’, i.e. de jure and de facto dis-crimination. Article XVII:3 specifies that a measure breaches national treatmentobligations ‘if it modifies the conditions of competition in favor of services andservice suppliers of the Member compared to like services and service suppliersof any otherMember’. Footnote 10 to the Article limits its scope: the national treat-ment obligation ‘shall not be construed to require any Member to compensate forany inherent competitive disadvantages which result from the foreign character ofthe relevant services or service suppliers’.

These provisions are applicable under the condition that a Member undertakesspecific commitments for each service sector. In so doing, they may choose theservice sector and mode of supply3 they intend to liberalize, as well as the levelof liberalization. Members wishing to liberalize a service sector must enter it, andthe level of liberalization, in a so-called ‘Schedule of Commitments’ in theMarket Access and National Treatment columns for each mode of supply. Thereare three alternatives when making specific commitments. The first is none. Inthis case, market access and national treatment requirements are fully applicableto the sector and mode of supply. The second is unbound. Here, commitmentsdo not apply to particular modes of supply or subsectors. The third is to specifythe exempted measures. This allows the Member to undertake a commitment,but limit it to specific circumstances or exempt particular measures, by providinga short description or summary of the regulation.4

3 Article I:2 GATS defines the four modes. Mode 1 (Article I:2(a)) covers the supply of a service ‘fromthe territory of one Member into the territory of any other Member’. In this case, only the service crossesthe border while service suppliers and consumers do not. Mode 2 (Article I:2(b)) is the supply of a service‘in the territory of one Member to the service consumer of any other Member’. Here, the consumer of theservice goes to the country where the service is provided. Mode 3 (Article I:2(c)) deals with the supply of aservice ‘by a service supplier of one Member, through commercial presence in the territory of any otherMember’. Here, the service provider establishes a firm in the territory of another Member in order tosupply their services on a permanent basis. Finally, Mode 4 (Article I:2(d)) describes a service supplied‘by a service supplier of one Member, through presence of natural persons of a Member in the territoryof any other Member’.

4WTO–CTS (2001).




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To a certain extent, both Market Access and National Treatment address dis-criminatory measures: Article XVI:2 prohibits six types of discriminatory andnon-discriminatory measures, while Article XVII requires non-discriminationbetween domestic and foreign services and service suppliers. Therefore, the samediscriminatory measures listed in Article XVI may also fall within the scope ofArticle XVII.

This situation makes it difficult to interpret Members’ commitments. Forinstance, it may become problematic to determine the level of liberalization whena Member registers a commitment unbound under market access and noneunder national treatment. Does this mean that it retains its power to discriminateregarding the measures listed in Article XVI (i.e. the inscription unbound prevails);or alternatively does this mean that it commits not to discriminate regarding bothmeasures covered by Articles XVI and XVII (i.e. the inscription unbound prevails)?The GATS itself is no help, as it does not specify which provision prevails in theevent of such an overlap.

The overlap also complicates the determination of the legal test that should beapplied to a discriminatory measure. This is because Articles XVI and XVIIcontain distinctive sets of obligations, which have different consequences. ArticleXVI does not require an assessment of the discriminatory nature of the measureper se. It rather aims to determine whether there has been a violation of the com-mitment not to adopt or maintain quantitative restrictions. In this sense, ArticleXVI sets negative criteria: it prohibits the use of a set of measures that limitmarket access regardless of their discriminatory nature. In contrast, national treat-ment provides normative criteria that Members must follow when enacting regula-tions: they must accord foreign services and services suppliers ‘treatment no lessfavorable’ compared to ‘like’ domestic services and service suppliers.5 Thisallows Members to enact regulations as long as they are non-discriminatory.Therefore, the normative content of Article XVI is stricter and more demandingthan that of Article XVII.6 Depending on the interpretation of the overlap, thenon-discrimination obligation may become more demanding for Members.

2.2 Articles XVI–XVII GATS: the overlap problem

The overlap does not pose a major problem when aMember enters the same type ofcommitment (none, unbound, or specific limitation) in both market access andnational treatment columns. In such an event, Article XX:2 states:

5 Panel Report, China –Measures Affecting Trading Rights and Distribution Services for CertainPublications and Audiovisual Entertainment Products, WT/DS363/R and Corr.1, adopted 19 January2010 (China–Publications and Audiovisual Products), as modified by Appellate Body Report WT/DS363/AB/R, paras. 7.1272, 7.942, and 7.956; Panel Report, China–Certain Measures AffectingElectronic Payment Services, WT/DS413, adopted 16 July 2012, paras. 7.641–7.643 (China–ElectronicPayment Services).

6 Ortino (2006: 138–139).




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Measures inconsistent with both Articles XVI and XVII shall be inscribed in thecolumn relating to Article XVI. In this case the inscription will be considered toprovide a condition or qualification to Article XVII as well.

This Article therefore avoids the duplication of measures that are inconsistent withboth market access and national treatment. A measure inscribed under Article XVIalso functions as a limitation under Article XVII.

A problem does arise where different commitments are inscribed in the marketaccess and national treatment columns. An example is if a Member entersunbound with respect to market access, and none regarding national treatment,leading to different interpretations. In this situation, the GATS does not providea clear-cut solution.

This issue has sparked an intense debate among WTO Members sitting on theCommittee on Specific Commitments (CSC). The Chairman of the Committee sum-marized the different positions into five approaches:7

. The first option would ensure the primacy of Article XVI: discriminatory mea-sures listed under Article XVI:2 would fall exclusively within the scope of thatArticle and would be excluded from the scope of Article XVII. In such a situation,Article XVI would become the lex specialis of these measures.

. The second option would make it clear that the measures listed in Article XVI:2only cover non-discriminatory measures. Any of these measures adopted intheir discriminatory form would fall within the scope of Article XVII. Such anoption would require the exclusion of measures referred to in Article XVI:2 sub-paragraphs (e) and (f), which could only be applied in a discriminatory form.

. The third option could be referred as ‘the commitment unbound takes all’: thecommitment unbound under either the market access column or the nationaltreatment column would permit a WTO Member to adopt a discriminatorymeasure falling within the overlap regardless of the entry in the other column.For instance, an unbound entry under in the market access column and none inthe national treatment column would allow the Member to implement ameasure covered by Article XVI even in its discriminatory form.

. The fourth option envisages the reverse situation and could be referred as ‘thecommitment none takes all’: in the case of an overlap, the entry containing thecommitment would prevail over an unbound entry. For instance, an entry nonein the market access column and unbound in the national treatment columnwould outlaw any discriminatory measures falling within the scope of ArticleXVI.

. The fifth option would require the WTOMember to introduce clarifying text intotheir schedules regarding the intended scope of their commitments. Such anapproach would oblige Members themselves to address the overlap issue.

7WTO–CSC (2003); Delimatsis (2006: 1074).




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To date, there is no agreed solution, and consequently the task of determining thebest approach has been left to WTO adjudicating bodies.

2.3 The overlap problem after China–electronic payments services

The problem of the overlap between Articles XVI and XVII obligations arose inChina–Electronic Payments Services. It was a case in point: for the ‘otherfinancial services’ sector China had inscribed unbound in mode 1 in the marketaccess column, but had registered none in mode 1 in the national treatmentcolumn. This situation begged the question of which commitments were applicableto the discriminatory quantitative restrictions listed in Article XVI:2. If the Panelfavored the primacy of Article XVI, China with its commitment of unbound inthe market access column, could have retained its rights to maintain discriminatorymeasures under Article XVI. In contrast, if the Panel held that Article XVII coveredall discriminatory measures, China, having made a commitment of none in thenational treatment column, could be found in violation of its GATS obligations.

The Panel favored the primacy of Article XVI, as a lex specialis of Article XVII.Consequently, the inscription unbound in the market access column took prece-dence. This means that when a measure is inconsistent with both Articles XVIand XVII and unbound is inscribed in the market access column, the Member isnot in breach of its full national treatment commitments as by market access lim-itations.8 In other words, the discriminatory measures listed in Article XVI:2 areanalyzed in terms of Article XVI, while other discriminatory measures are assessedunder Article XVII.

The Panel clarified that their intention was not to establish a hierarchy betweenthese provisions, but rather to create a ‘scheduling primacy’ for entries in themarket access column based on Article XX:2 GATS.9 In fact, the ruling indirectlydelineated the scope of national treatment: discriminatory measures correspondingto the list of measures mentioned in Article XVI GATS fall outside the scope ofArticle XVII GATS.

Although the Appellate Body has not yet ruled on the matter, there are strongarguments in favor of this solution. First, Article XVI:2 contains two sub-para-graphs10 covering specifically discriminatory situations. Therefore, limiting thesubparagraphs of Article XVI:2 to non-discriminatory measures, as the secondapproach suggests, would require a contra legem interpretation of this provision,which goes beyond the mandate of the Dispute Settlement Understanding(Article 2.3 DSU). Second, this interpretation finds contextual support in ArticleXX:2 GATS. It is premised on the existence of measures ‘inconsistent with both

8 Panel Report, China–Electronic Payment Services, paras. 7.649–7.664.9 Ibid, para. 7.664.10 Article XVI:2 (e): ‘limitations on joint venture’ and Article XVI:2 (f): ‘limitations relating to foreign

equity participation’.




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Article XVI and XVII’, i.e. on the existence of measures within the scope of ArticleXVI:2 that appear discriminatory. 11 This provision gives precedence to ArticleXVI GATS when identical commitments are found in market access and nationaltreatment columns. Although it does not explicitly govern the situation where com-mitments are contradictory, it offers a legal context for the adoption of the mostsuitable interpretation.12 In contrast, the four other approaches lack textualsupport.

2.4 Conclusion

As a result, the Panel’s interpretation appears reasonable; moreover, it has not beenappealed. Therefore, it can be concluded that China–Electronic Payments Servicesoffers a certain degree of clarification on the interpretation of specific commit-ments. It may oblige some Members to reconsider their schedules and clarifytheir level of liberalization. The Panel’s report also indirectly provides some guid-ance on the relationship between Articles XVI and XVII and their respective scope.Article XVI has a central role with respect to discriminatory measures in the pre-establishment stage. As a result, the non-discrimination requirement becomesmore stringent.

At the same time, it raises a question regarding the scope of national treatment,depending on whether it covers the pre-establishment and/or post-establishmentsituation. If Article XVII is considered to only cover pre-establishment discrimin-ation, then the scope of the national treatment obligation could be significantlylimited.13 The GATS does not provide a clear answer to this question. InArgentina–Financial Services, both the parties and the Panel appeared to considerthat national treatment only applies to pre-establishment.14 As the Appellate Bodydid not address the matter, the question remains open.

3. Market access (Article XVI) – domestic regulation (Article VI)

3.1 Article VI GATS in a nutshell

Article VI GATS is found in Part II ‘General obligations and Disciplines’.Therefore, unlike Articles XVI and XVII, obligations under Article VI aregeneral, i.e. they do not depend on specific commitments. These requirements arenevertheless conditional: their application is limited to service sectors whereMembers have undertaken liberalization commitments (Article VI:1, 3, and 5).

11 Panel Report, China–Electronic Payment Services, paras. 7.653–7.654.12 Ibid, para. 7.659.13Mattoo (1997: 117).14 Panel Report, Argentina –Measures Relating to Trade in Goods and Services, WT/DS453/R, 30

September 2015, paras. 7.107–7.113 (Argentina–Financial Services).




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Article VI contains two sets of obligations. First, it includes disciplines of a pro-cedural nature related to the application (Article VI:3), administration (ArticleVI:1), and review (Article VI:2) of all measures of general application affectingtrade in services.15 Second, Article VI:4–5 GATS contains substantive obligationsrelated to qualification/licensing requirements and procedures and technical stan-dards (hereinafter: QLT). Article VI:4 mandates the Council for Trade inServices, through appropriate bodies, to develop disciplines with a view to ensuringthat QLT inter alia do not constitute unnecessary barriers to trade in services.Pending the entry into force of these disciplines, Article VI:5 requires WTOMembers to adopt QLT that are based on objective and transparent criteria, andare not more burdensome than necessary to ensure the quality of the service(Article VI:5(a)) with the aim of not nullifying or affecting specific commitmentsmade under Articles XVI and XVII GATS.

3.2 Relationship between Articles XVI–VI GATS

To a certain extent, some QLT can be understood as market access restrictions as itis quite clear that the scope of Article XVI extends to domestic regulation: most ofthe measures mentioned in Article XVI:2 are market access restrictions applied in adomestic regulatory context. This situation could result in an overlap of the twoprovisions.

The GATS does not explicitly address the relationship between Article XVI andArticle VI. On the basis of the Scheduling Guidelines16 (1993 SchedulingGuidelines17 and the 2001 Scheduling Guidelines18), the Panel in US–Gamblingdeclared that ‘Article VI:4 and VI:5 on the one hand and Article XVI on theother hand are mutually exclusive’.19 The Appellate Body seemed to distanceitself from this finding, refusing to draw a distinction in the abstract.20

Consequently, WTO case law does not provide a clear demarcation betweenArticles XVI and VI.

Nevertheless, some elements tend to support the primacy of Article XVI overArticle VI. First, Article VI:5 states that a Member shall not apply QLT ‘thatnullify or impair the specific commitments made under Article XVI and XVII

15 Panel Report,United States –Measures Affecting the Cross-Border Supply of Gambling and BettingServices, WT/DS285/R, adopted 20 April 2005 (US–Gambling), as modified by Appellate Body ReportWT/DS285/AB/R, DSR 2005:XII, p. 5797, para. 6.432.

16 The Scheduling Guidelines were adopted by the Council for Trade in Services in order to helpMembers negotiate their commitments. During the Uruguay Round, Members used the so-called 1993Scheduling Guidelines. In the current round of negotiations they have been using the 2001 SchedulingGuidelines.

17WTO–Secretariat (1993).18WTO–CTS (2001).19 Panel Report, US–Gambling, para. 6.305.20 Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling

and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, para. 250 (US–Gambling).




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GATS’, which tends to suggest that Article VI is complementary to Articles XVIand XVII. In addition, the most recent draft of the Working Party of DomesticRegulation (WPDR) mentions that the disciplines of Article VI:4 should notapply to measures to the extent that they constitute limitations subject to schedulingunder Article XVI or XVII.21 Current negotiations reflect general agreement on thisissue among Members.22

Accordingly, origin neutral restrictions found in Members’ internal regulations,which affect trade in services, are first analyzed under Article XVI, then underArticle VI. The purview of these provisions is different.

Article XVI covers quantitative restrictions – listed in Article XVI:2 (a–d)) –which do not relate to the quality of the services supplied, or to the ability of thesupplier to supply the service. They impose ‘maximum limitations’ that cannotbe overcome by any action of the supplier.23 Measures such as: an economicneed test for certain service suppliers; an annual quota for foreign service suppliersin a service sector; or a limitation on the number of employees foreign companiesare allowed to hire fall into this category. These restrictions are considered mostharmful, and can only be justified by a limited number of reasons that must belisted in Article XIV GATS. They thus have greater impact on WTO Members’regulatory autonomy. This situation is nonetheless rebalanced by the specific com-mitments mechanism.

In contrast, Article VI is concerned with qualitative domestic regulations relatedto the quality of services, or the ability of service suppliers. They impose a‘minimum limitation’, i.e. requirements for the provision of services that servicesuppliers must fulfill in order to be authorized to supply their services. They cantake different forms such as: educational requirements; minimum years of practice;proof of character; membership of a professional organization or the mandatoryuse of specific technical content.

3.3 The interpretation of Article XVI GATS in US–Gambling

A problem arises when the scope of the measures listed in Article XVI is extended,and encroaches on measures that should fall within the remit of Article VI.However, the two articles serve different purposes.

Article XVI prohibits certain measures and aims to remove them, although theycan be justified on limited grounds that must be listed in Article XIV. In contrast,under Article VI:4–5, measures are presumed to serve a legitimate regulatorypurpose. Obligations focus on ways to achieve the policy objective in order to miti-gate any negative impact on the cross-border supply of services by increasing thetransparency of domestic regulation or by ensuring that domestic regulation is

21WTO–WPDR (2009: 10).22WTO–WPDR (2011: 10).23WTO–CTS (2001: 8–9).




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not more trade restrictive than necessary to meet its stated objective. It follows thatArticle VI obligations leave more room for regulatory autonomy than Article XVI,which does not require the removal of the measure in question, but rather implies adiscussion of other ways to achieve the stated regulatory objective. In this context,broadening the scope of Article XVI could limit Members’ right to regulate.

This was the background for US–Gambling. The case involved a series of UnitedStates federal and state measures that restricted the remote supply of gambling andbetting services to consumers within the country. Antigua claimed that such mea-sures resulted in a ‘total prohibition’ of the cross-border supply of gambling ser-vices from Antigua that was in violation of United States’ obligations under theGATS. First, it was established that the United States had inscribed none in theMarket Access column in mode 1 for gambling and betting services, whichmeant that it had committed to not maintain any of the types of measures listedin the six subparagraphs of Article XVI:2. The subsequent question was whetherthe full prohibition of remote gambling services had breached Article XVI:2GATS subparagraphs (a) and (c).

As mentioned earlier, Article XVI:2 contains a list of measures that Membersshall not maintain or adopt in sectors where market access commitments are under-taken. This list includes mostly quantitative restrictions. In particular, paragraph(a) refers to the ‘limitation on the number of services whether in the form of numer-ical quotas, monopolies, exclusive service suppliers or the requirements of an eco-nomic needs test’. In addition, paragraph (c) includes ‘limitations on the totalnumber of service operations or on the total quantity of service output expressedin terms of designated numerical units in the forms of quotas or the requirementsof an economic needs test’.

The problem stems from the fact that the full prohibition of service suppliers andservices, such as is found in United States’ gambling laws, are not expressly men-tioned in Article XVI:2 subparagraphs (a) and (c). This situation led WTO adjudi-cating bodies to be asked to interpret Article XVI GATS to determine whether thistype of restriction could be read into subparagraphs (a) and (c). Both the Panel andthe Appellate Body held that the list of measures in Article XVI:2 was exhaustive.24

In addition, the Panel found that the limitations enumerated in subparagraphs (a)and (c) were not illustrative, but exclusive.25 The Appellate Body indirectlyconfirmed this opinion, holding that the words ‘in the form’ found in ArticleXVI:2 (a) should not be replaced by the words ‘that have the effect of’.26

Therefore, the specific question was whether a full prohibition could amount to a‘limitation on the number of suppliers’ within the meaning of Article XVI:2(a) aswell as a ‘limitation on the total number of service operations’ within the

24 Panel Report, US–Gambling, para. 6.318; Appellate Body Report, US–Gambling, para. 215.25 Panel Report, US–Gambling, para. 6.325.26 Appellate Body Report, US–Gambling, para. 232.




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meaning of Article XVI:2(c). Both the Panel and the Appellate Body held that a fullprohibition of certain services effectively ‘limited to zero’ the number of servicesuppliers and service operations relating to that service. Such a prohibitionamounts to a ‘zero quota’, which constitutes a limitation on both the numberof suppliers (Article XVI:2(a)) and the number of service operations (ArticleXVI:2(c)).

3.4 Relationship between Articles XVI–VI GATS after US–Gambling

Some commentators criticized this interpretation on the grounds that it couldextend the scope of Article XVI GATS to indirect quantitative restrictions thatshould normally fall within the purview of Article VI GATS.27 The risk is thatthe per se prohibition of market access (Article XVI) encroaches on the regulatoryautonomy of WTOMembers to set domestic regulations, undermining the delicatebalance between trade liberalization and the right to regulate. To illustrate thispoint, Pauwelyn argued that indirect quantitative restrictions could include, forinstance, the requirement for taxi drivers to pass a driving test, which wouldkeep drivers that do not pass the test off the market. Obviously, such restrictionsdo not fall within the scope of Article XVI GATS, but his point was that the US–Gambling interpretation could result in this absurd situation. Instead, he suggestedthat United States’ gambling law should be understood as a technical standardwithin the meaning of Article VI:4–5 GATS.28

Here, it is argued that the WTO adjudicating bodies’ interpretation is moreappropriate. Unlike most critics, it is submitted that a blanket prohibition ononline gambling services cannot fall within the scope of Article VI GATS for thereasons outlined in the following paragraphs.

First, a total ban on online gambling services is more relevant to Article XVI.Article VI covers measures related to licensing/qualification requirements, and pro-cedures and technical standards, which are designed to ensure the quality of servicesuppliers and services. They set minimum requirements that service suppliers mustmeet in order to be authorized to supply the service. A full prohibition can hardlyserve to ensure the quality of a service as anticipated by Article VI, as no servicesuppliers can meet the requirement.29 In contrast, Article XVI addresses quantita-tive restrictions, found in domestic regulation, that limit cross-border services. Itdoes not address the quality of the services supplied, or the ability of the supplierto supply the service, but rather imposes ‘maximum limitations’ that cannot beovercome by any action of the supplier. This is the situation of a total ban ononline gambling services.

27 Pauwelyn (2005), Ortino (2006), Krajewski (2005), Vranes (2009).28 Pauwelyn (2005: 152–161).29 Delimastis (2006: 1071–1072).




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Second, these restrictions do not amount to licensing/qualification requirementsor procedures. A total ban on online gambling services leaves no room for anassessment of licensing or qualification requirements: it does nothing more thanexclude the provision of the service. The situation would be different if regulationshad been in place to limit the supply of such services to licensed providers, as thiswould fall under Article VI. This is not the case for a blanket prohibition as it pro-hibits supply in one mode.

Third, a total ban on online gambling services cannot be considered as a ‘tech-nical standard’. The GATS text does not define the term. Nevertheless, discussionsamongst Members in the context of negotiations on the Disciplines on DomesticRegulation in the Accountancy Sector30 and other ongoing negotiations31 tendto suggest that ‘technical standards’ could be understood as criteria or rules speci-fying both the characteristics of the service, and the manner in which it should beperformed. The distinction is somewhat akin to that made in the Technical Barriersto Trade (TBT) Agreement between ‘product characteristics’ and ‘related processesand production methods’.32 Therefore, the interpretation of a technical regulationdeveloped under the TBT is relevant in the Article VI GATS context.

Three conditions must be met for a measure to be considered as a technicalregulation. First, it must be a ‘document’ that ‘lays down product/service charac-teristics’. Second, it must be mandatory. Third, it must be applicable to an identifi-able product or group of products.33 While the two last conditions could beapplicable to online gambling regulations, the central question is whether the reg-ulations lay down product/service characteristics.

In EC–Seal Products, the Appellate Body noted that a measure that regulated theplacement of seal products on the European market did not prescribe or impose anycharacteristics on the products themselves.34 However, in EC–Asbestos it held thatdespite appearances, a total ban on asbestos was a technical regulation as themeasure effectively prescribed ‘certain objective features, qualities or characteris-tics of all products’, which must not contain asbestos fibers. It reached this conclu-sion only after a detailed examination of other aspects of the measure (i.e. certainexceptions to such a prohibition).35

In US–Gambling, the blanket prohibition regulated the placement of gamblingservices on United States’ market without imposing or prescribing any characteris-tics on the service itself. Thus, the question is whether the measure effectively

30WTO–CTS (1998).31WTO–WPDR (2009).32WTO –WPDR (2012b: 6–7).33 Appellate Body Report, European Communities –Measures Affecting Asbestos and Asbestos-

Containing Products, WT/DS135/AB/R, adopted 5 April 2001, paras. 67–70 (EC–Asbestos).34 Appellate Body Report, European Communities –Measures Prohibiting the Importation and

Marketing of Seal Products, WT/DS400/AB/R, WT/DS401/AB/R, 22 May 2014, para 5.58 (EC–SealProducts).

35 Appellate Body Report, EC–Asbestos, paras. 71–72 .




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prescribed ‘certain objective features, qualities or characteristics of all products’.The prohibition of the supply of services in mode 1 could be understood a prescrip-tion of characteristics akin to the asbestos-free requirement. At the same time, theAppellate Body in EC–Asbestos specified ‘the prohibition on asbestos fibres doesnot in itself prescribe or impose characteristics on asbestos fibres, but simplybans them in their natural state. Accordingly, if the measure consisted only of a pro-hibition on asbestos fibres, it might not constitute a technical regulation’. Certainstates in the United States prohibit any form of gambling service, which, accordingto EC–Asbestos, implies that they do not constitute a technical standard.Furthermore, none of the relevant regulations related to online gambling providefor exceptions. As a result, and taken together, these elements suggest that a pro-hibition on online gambling services cannot be defined as a technical standardwithin the meaning of Article VI GATS.

In the light of these considerations, this paper submits that the Panel and theAppellate Body were correct in their interpretation that full prohibition constitutesa quantitative restriction within the meaning of Article XVI:2 GATS. It ultimatelyused Article XIV GATS exceptions relating to public morals and order to justify aviolation of the Article.36

3.5 Conclusion

The foregoing shows that both Article XVI and Article VI address origin neutraldomestic regulations that affect trade in services. Article XVI prohibits the use ofa specific list of quantitative restrictions, while Article VI is concerned with mea-sures related to the quality of services. Both provisions apply under the conditionthat Members have undertaken a commitment in the service sector: the applicationof Article XVI depends on the type of commitment, while Article VI refers togeneral conditional obligations. Article XVI takes precedence over Article VI.

A problem stems from the delimitation of the scope of Article XVI. In US–Gambling, both the Panel and the Appellate Body opted for a restrictive interpret-ation of Article XVI: they held that the measures listed in Article XVI were exhaust-ive, and specified that the subparagraphs were exclusive. Another issue arises withthe interpretation of measures enumerated in the subparagraphs of Article XVI:2,which could extend their scope to measures that have an effect that is equivalent tothose mentioned in subparagraphs (a) to (d).

The position taken here is that the Panel and the Appellate Body were correct intheir interpretation, which qualified full prohibition as a quantitative restrictionwithin the meaning of Article XVI:2 GATS. At the same time, it must be stressedthat concerns about a broad interpretation of Article XVI GATS are legitimate,as it could affect WTO Members’ regulatory autonomy. In this regard, therecent Argentina–Financial Services Panel report specified that any measure that

36Wouters and Coppens (2008: 233–234).




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only indirectly limits any of the elements covered by subparagraphs (a) to (d) wouldnot be covered by Article XVI obligations.37 The Appellate Body has not addressedthe issue.

4. National treatment (Article XVII) – domestic regulation (Article VI)

4.1 Relationship between Articles XVI–VI GATS: origin neutral measures

The national treatment obligation deals with discrimination between domestic andforeign services and service suppliers. A violation is established if four cumulativeconditions are fulfilled: (i) the respondent has made a national treatment commit-ment in the relevant sector(s) or mode(s) of supply in its Schedule of Commitments;(ii) the measure ‘affects’ trade in services; (iii) domestic and foreign services andsuppliers are ‘like’; and (iv) the measure ‘accords less favorable treatment’ toforeign services and suppliers.38

The question of the relationship between Articles XVII and VI arises in relationto the interpretation of the ‘no less favorable treatment’ obligation. This question isthe final step in establishing a violation of Article XVII. It includes de jure and defacto discriminatory measures (Article XVII:2).De jure discrimination openly linksdifferences in treatment to the origin of services or service suppliers; de facto dis-crimination relates to differences in treatment that is not based on the origin of ser-vices and service suppliers, but from ‘neutral’ criteria. These measures areconsidered ‘less favorable’ when they modify the conditions of competition infavor of domestic services and suppliers compared to like services or service suppli-ers of another Member (Article XVII:3).

Therefore, both Article XVII and Article VI deal with origin neutral measures.Article XVII addresses any origin neutral measure (i.e. measures that do not dis-criminate overtly) that modifies conditions in favor of domestic services and suppli-ers; Article VI covers origin neutral measures related to licensing, qualificationrequirements and procedure and technical standards that are more trade restrictivethan necessary to achieve legitimate regulatory objectives (Article VI:4–5).

The main difference between these provisions lies in their use of the necessitytest.39 Under Article XVII, the test is used as an exception found in Article XIV.This provision provides WTOMembers with a lawful escape route from their obli-gations: discriminatory measures can be maintained as long as such measures are

37 Panel Report, Argentina–Financial Services, paras. 7.420–7421.38 Panel Report, China–Publications and Audiovisual Products, para. 7.944; Panel Report, China–

Electronic Payment Services, para. 7.641; Panel Report, Argentina–Financial Services, para. 7.448.39 In general terms, the test seeks to establish whether a measure can be justified based on whether it is

necessary to achieve policy objectives. It reflects the balance that the WTO agreements seek to strikebetween two important goals: preserving the freedom ofWTOMembers to set and achieve their regulatoryobjectives through measures of their own choosing, on the one hand; and discouraging Members fromadopting or maintaining measures that unduly restrict trade, on the other. WTO–WPDR (2003).




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proven to be necessary to achieve a regulatory objective. It includes an exhaustivelist of policy purposes that justify derogation to trade liberalization. Under ArticleVI, the necessity test functions as an obligation. It applies directly to the measure atissue and seeks to ensure that such measures are not more restrictive than necessaryto achieve a national policy objective. In this case, the list of permissible policyobjectives is open.

The major difference between these two tests lies in the list of policy objectivesthat justify a derogation. Article XIV contains a closed list of policy objectives,while under Article the list is open. Hence, a measure that is not based on one ofthese objectives cannot be justified under Article XIV. Yet this list does not corres-pond to the reality of regulatory activities in the service sector, and the AppellateBody does not appear ready to transform the closed list into an open one.40

As a result, the justification of origin neutral measures that fall within the scopeof Article XVII is more limited than those falling within the purview of Article VI.Extending the scope of Article XVII compared to Article VI could potentiallyseverely affect Members’ regulatory autonomy.

4.2 The dividing line between Articles XVII–VI GATS: a definition of defacto discrimination

It was noted above that Article VI GATS complements Articles XVI and XVII:spe-cifically, it is applicable to measures that are not covered by Articles XVI and XVIIobligations. Therefore, the interaction between Articles VII and VI depends on thedefinition of the scope of Article XVII, and more particularly the scope of the pro-hibition on de facto discrimination.

This issue is controversial as the only criterion mentioned in the GATS (ArticleXVII:3) is the ‘modification of the conditions of competition in favor of domesticservices and service suppliers compared to like services or service suppliers ofany other Member’, which could include a wide range of measures. Footnote 10to Article XVII sets another limit: the national treatment obligation does notaddress ‘any inherent competitive disadvantages, which result from the foreigncharacter of the relevant services or service suppliers’. In other words, discrimin-ation only arises if the disadvantage is caused by a Member’s conduct in theform of a regulation or practice.41 Beyond this, there is no clear definition of thelimits of de facto discrimination.42

Scholars have debated the issue. Various mechanisms have been suggested thateither limit the scope of the prohibition of de facto discrimination, or include an

40Appellate Body Report, EC–Seal Products, para. 5.118. The Appellate Body’s interpretation con-cerned Article XX GATT, which is equivalent to Article XIV GATS.

41 Appellate Body Report, Argentina –Measures Relating to Trade in Goods and Services, WT/DS453/AB/R, 14 April 2016, para. 6.104 (Argentina–Financial Services).

42 Krajewski and Engelke (2008: 412–416).




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assessment of regulatory purpose in the less favorable treatment assessment.Mattoo and Verhoosel propose the inclusion of a ‘necessity test’ in the less favor-able treatment analysis.43 Zdouc puts forward a theoretical test to compare therestrictive impact of a measure on foreign services and service suppliers with theinherent competitive disadvantages resulting from the foreign character of the ser-vices.44 Krajewski suggests taking into account de facto discrimination that wasforeseeable by Members at the time of scheduling.45 Cossy and Pauwelyn arguefor the introduction of an improved aims and effects test.46 Diebold submits thatcompetition is at the heart of the analysis and supports the application of an asym-metric impact test.47 Finally, Flett (following US–Clove Cigarettes) recommendsexcluding any measure that stems from the legitimate regulatory distinction inthe analysis.48

More recently, the Appellate Body took the opportunity to provide its interpret-ation of the ‘no less favorable treatment’ in Argentina–Financial Services.

4.3 Interpretation of ‘No Less Favorable Treatment’ in Argentina–financialservices

The case involved a series of measures adopted by the Argentine government,which set out different tax regimes for services and service suppliers in two jurisdic-tions: ‘non-cooperative’ and ‘cooperative’.49 Based on this distinction, Argentinaput in place eight measures that affected cross-border trade in financial servicesbetween Argentine customers and taxpayers and Panamanian financial service sup-pliers (Panama being a ‘non-cooperative’ jurisdiction). In 2013, Panama brought acase against Argentina arguing that this distinction contravened non-discrimin-ation obligations under the GATS.

The Panel found that most of these regulations were discriminatory within themeaning of Articles II and XVII. However, when interpreting the term ‘no lessfavorable’, it held that the reference to ‘service suppliers’ in Articles II and XVIImight lead the interpreter to take into account ‘the relevant regulatory aspectsconcerning service suppliers which have an impact on the condition of competi-tion’. On this basis, it concluded that ‘consideration of these regulatory aspectscould … mean that certain regulatory distinctions between service suppliers estab-lished by a Member do not necessarily constitute less favorable treatment under

43Mattoo (1997: 129–133); Verhoosel (2002: 74–106).44 Zdouc (2004: 412).45 Krajewski (2003: 113–114).46 Cossy (2008: 341–353); Pauwelyn (2008: 358–370).47 Diebold (2010: 352–354).48 Flett (2014: 55–91).49 ‘Non-cooperative jurisdictions’ do not exchange information with Argentina for purposes of tax

transparency, the prevention of money laundering and terrorist financing. ‘Cooperative jurisdictions’have agreements in place for the effective exchange of information, or fulfill certain requirements for start-ing negotiations on the issue.




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Articles II and XVII of the GATS’.50 Consequently, some measures that had origin-ally been found discriminatory within the meaning of Article XVII were deemedconsistent, as a result of their regulatory objectives.

Argentina appealed the decision, and the Appellate Body undertook a thoroughanalysis in order to determine whether the ‘no less favorable treatment’ require-ment took into account the regulatory aspect of a measure. It began with an ana-lysis of the GATS text, then examined the context for non-discriminatoryprovisions under the GATT and the TBT Agreement.

The Text of the GATS

The Panel considered that the definition of the ‘no less favorable treatment’ require-ment was based on Article XVII:3 GATS related to the conditions of competition.In addition, it found that three elements in particular provided support for theinclusion of an assessment of the regulatory aspects of a measure: the broadscope of the GATS;51 the reference to ‘services and services suppliers’;52 and therecognition (in the Preamble’s third and fourth recitals) of Members’ right to regu-late in order to meet their national policy objectives.53

The Appellate Body argued that it did not see how the requirements regarding theconditions of competition could be modified by the introduction of considerationsrelated to the regulatory aspects of a measure. First, it pointed out that the broadscope of application of GATS Articles II or XVII is not unique. Article III:4GATT has also extensive scope, which has not justified the inclusion of regulatoryaspects in the no less favorable treatment analysis. Second, it noted that the refer-ence to ‘service suppliers’ is a particular feature of the GATS, but did not see howthis reference could change the legal standard of ‘treatment no less favorable’,pointing out Panel’s failure to provide satisfactory arguments.54 Third, it observedthat the ‘national policy objectives’ referred to in the Preamble mean that Memberswho comply with their GATS commitments and obligations are free to pursue thenational policy objectives that they consider appropriate. It stressed that the pursuitof these objectives was not equivalent to a violation ofMembers’GATS obligationsand could be accommodated without the need to invoke Article XIV. Under certainconditions, exceptions can be used to recognize a Member’s right to pursue objec-tives that are otherwise inconsistent with the GATS. This suggests a narrow scope,and consequently limited grounds for justification.55

These considerations led the Appellate Body to conclude that the interpretationof the term ‘treatment no less favorable’, which is based on a measure’s detrimental

50 Panel Report, Argentina–Financial Services, para. 7.232.51 Panel Report, Argentina–Financial Services, para. 7.232.52 Ibid, para. 7.212.53 Ibid, para. 7.217.54 Appellate Body Report, Argentina–Financial Services, paras 6.108–6.111.55 Ibid, para. 6.117.




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impact on the conditions of competition, does not prevent aMember from pursuinga wide range of national policy objectives that are beyond those identified in excep-tions.56 It stressed that the GATS’ structure provides two mechanisms that enableMembers to preserve their right to pursue national policy objectives. First, they canutilize certain flexibilities when undertaking specific commitments (Article XXGATS). Second, Article XIV sets out general exceptions from their obligations.57

The context of non-discriminatory provisions in the GATT and the TBTAgreement

Another line of argument aimed to transpose the interpretation of national treat-ment under the TBT Agreement to GATS national treatment. This implies inter-preting the scope of de facto discrimination under Article XVII GATS in the lightof US–Clove Cigarettes.58

In this report, the Appellate Body held that the ‘treatment no less favorable’requirement of Article 2.1 TBT should be interpreted as prohibiting only de jureand de facto discrimination against the group of imported products. In contrast,a detrimental impact on imports that ‘stems exclusively from a legitimate regula-tory distinction’ fell outside its purview.59 In other words, the aim is to prohibitorigin neutral measures that discriminate de facto against foreign products, but ameasure that affects trade in services can be allowed if it stems exclusively froma legitimate regulatory distinction.

Transposed to the GATS, this would mean that once a panel finds that an originneutral measure modifies the condition of competition in favor of domestic servicesand service suppliers, it must then determine whether such a measure stems exclu-sively from a legitimate regulatory distinction.

Support for this solution is based on the argument that the contents of ArticleXVII GATS and Article 2.1 TBT are comparable: they both require WTOMembers to accord ‘treatment no less favorable’ to foreign products or servicesthan to domestic counterparts. Furthermore, both Agreements have the same objec-tives in their Preambles: to strike the balance between trade liberalization and pres-ervation of the rights of WTO Members.60

However, the reasons for this interpretation are specific to the TBT: there are noexceptions in the TBT that are similar to Article XIV GATS. This was one ofthe main factors that led both the Panel61 and the Appellate Body62 in

56 Ibid, para. 6.118.57 Ibid, paras. 6.112–6.115.58 Panel Report, Argentina submission, Argentina–Financial Services, paras. 7.200–7.201. See also

Flett (2014: 55–91).59 Appellate Body Report, United States –Measures Affecting the Production and Sale of Clove

Cigarettes, WT/DS406/AB/R, adopted 24 April 2012, para. 181 (US–Clove Cigarettes).60 Panel Report, Argentina–Financial Services, para. 7.200.61 Ibid, paras. 7.229–7.231.62 Appellate Body Report, Argentina–Financial Services, para. 6.121.




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Argentina–Financial Services to reject the incorporation of theUS–Clove Cigarettesinterpretation in the Article XVII GATS context. Furthermore, the Appellate Bodystressed that the position was in line with its interpretation of national treatmentunder the GATT (Article III:4) in EC–Seal Products. 63

4.4 Relationship between Articles XVII and VI after Argentina–FinancialServices

As a result, the Appellate Body clearly ruled out any inclusion of an assessment ofthe regulatory purpose of a measure in the no less favorable treatment requirement.This interpretation is consistent with the Appellate Body’s interpretation ofnational treatment under GATT.

This means that the only factor to be taken into account in the assessment iswhether the measure in question modifies the conditions of competition in favorof domestic suppliers compared to their foreign counterparts, as long as this mod-ification does not result from the foreign character of the relevant services or servicesuppliers (Footnote 10 of Article XVII). In their interpretation of the requirement,the Appellate Body limited the scope of the non-discrimination obligation. In EC–Bananas III, it adopted the ‘asymmetric impact test’ (which compares aggregateddomestic sub-groups with their foreign equivalents) rather than the ‘diagonal test’(which asks whether imports receive less favorable treatment than domestic pro-ducts).64 The asymmetry test is more demanding than the diagonal test, as it isnot sufficient to show that certain imported products receive less favorable treat-ment than certain domestic products. Instead, it is necessary to demonstrate thatthe regulatory burden negatively affects most imports compared to most (like)domestic products.65

There is no further guidance on the limits of de facto discrimination, making itdifficult to assess the scope of a commitment none under national treatment.This raises the question of whether it only includes the most significant restrictions(such as residency requirements) for foreign services, or whether it also encom-passes any restrictions to trade – similar to the Court of Justice of the EuropeanUnion’s interpretation in Säger66 and Gebhard,67 which prohibits any restrictionson trade in services unless they are considered necessary to protect the overridingpublic interest.

63 Appellate Body Report, EC–Seal Products, paras 5.100–5.117.64 Appellate Body Report, European Communities – Regime for the Importation, Sale and

Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, paras. 243–244, 246 (EC–Bananas III).

65 Ehring (2002).66 In modes 1, 2, and 4 , Säger C-76/90,Manfred Säger v.Dennemeyer&Co. Ltd [1991], ECR I-4221.67 In mode 3, Gebhard, C-55/94, Reinhard Gebhard v. Consiglio dell’Ordine degli Avvocati e

Procuratori di Milano [1995], ECR I-4165.




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In Argentina–Financial Services, the Appellate Body stressed that the GATS’structure preserved Members’ rights to regulate through two mechanisms: excep-tions (Article XIV) and specific commitments (Article XX). In particular, it recalledthat the specific commitments procedure enabled Members to use certain flexibil-ities in order to determine which sector market access and national treatment obli-gations applied to, and to what extent.68 Members are able to register their level ofliberalization in a document referred to as the ‘Schedule of Commitments’.Decisions are the result of successive rounds of market access negotiations(Article XX GATS) that are designed to increase the number of Members thatmake specific commitments in a maximum number of service sectors. WTO expor-ters submit requests to potential importers, stating the level of liberalization theyare seeking in each service sector.

The negotiating process tends to be overlooked, but it is fundamental in thedetermination of national treatment. A broad interpretation of less favorable treat-ment that goes well beyond what has been negotiated could completely underminethe GATS process: Members that have agreed on the terms of liberalization aftertough negotiations could find themselves trapped in unanticipated disputes, andbe reluctant to make further commitments; other Members that have not yet under-taken commitments might be deterred from doing so. Such a situation wouldclearly be inconsistent with the principle of ‘progressively higher levels of liberaliza-tion… through successive rounds of multilateral negotiations’ set out in the SecondRecital of the GATS Preamble. It is thus crucial to understand howMembers them-selves see the scope of de facto discrimination, and then determine what this impliesfor its definition under Article XVII GATS.

In practice, Members’ understanding of the scope of de facto discriminationappears to be quite narrow and focused on residency requirements in servicesectors. Coupled with de jure discrimination, this narrow understanding is consist-ent with the limited number of exceptions in Article XIV GATS. It also leavesgreater scope for the meaningful application of the necessity test as an obligation,and thus respects the balance between liberalization and the preservation of regu-latory autonomy. However, a major problem is that Article VI GATS remains awork in progress.

4.5 Article VI:4–5: the necessity test

The necessity test is mentioned in two paragraphs of Article VI GATS:4 and5. Article VI:5 GATS provides for the application of a necessity test to measuresrelating to licensing/qualification requirements and procedures, and technical stan-dards, pending the entry into force of further disciplines. Article VI:5 GATSrequires that WTO Members ‘shall not apply licensing and qualification require-ments and technical standards that nullify or impair such specific commitments

68 Appellate Body Report, Argentina–Financial Services, para. 6.112.




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in a manner which’ [does not comply with the requirement to be] ‘not more bur-densome than necessary to ensure the quality of the service’ (in service sectorswhere they have undertaken commitments). However, Article VI:5 (a) (ii) GATSlimits the scope of this obligation to cases that ‘could not reasonably have beenexpected of that Member at the time the specific commitments in those sectorswere made’.

Article VI:4 GATS mandates the Council for Trade in Services to establish bodiesto develop the necessary disciplines on measures relating to licensing/qualificationrequirements and procedures, and technical standards in order to ensure that theyare inter alia: ‘not more burdensome than necessary to ensure the quality of theservice’. Within the Working Party on Domestic Regulation (WPDR), WTOMembers are currently negotiating the terms of these disciplines, which willapply to all service sectors.

The incorporation of the necessity test in future domestic regulation disciplines isa hotly debated issue. SomeWTOMembers are strongly opposed to the solution.69

As a result, WPDR negotiations have not provided any meaningful decisions. At thesame time, the issue is a subject of negotiations regarding the Trade in ServicesAgreement (TISA) and Transatlantic Trade and Investment Partnership (TTIP). Itremains to be seen whether these negotiators will finish the job.70

4.6 Conclusion

The foregoing shows that the relationship between Article XVII and Article VI con-cerns origin neutral measures. One of the main differences between the provisions istheir use of the necessity test. Under Article XVII the test has a more limited scopethan under Article VI, which could result in more limited regulatory autonomy forMembers.

Even if the GATS does not expressly govern this relationship, there are strongarguments that favor the precedence of Article XVII over Article VI. Therefore,the delimitation between Article XVII and VI depends on the definition of thescope of de facto discrimination.

The issue has been hotly debated in the literature. In Argentina–FinancialServices, the Appellate Body clearly ruled out any inclusion of the regulatorypurpose of a measure in the less favorable treatment analysis. Yet, the exactscope of the prohibition of de facto discrimination remains unclear.

Based on the structure of the GATS and the current round of negotiations, thisarticle argues that the scope should be narrow. This would result in the necessitytest playing a significant role in Article VI. However, a meaningful test has notyet been developed due to resistance from Members in various arenas, be it theGATS, the TISA, or the TTIP. At the same time, barriers to trade in services, in

69WTO–WPDR (2011).70Muller (2015).




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the form of quantitative restrictions or overt discrimination, are being significantlyreduced, while origin neutral limitations remain important.71 These evolutions begthe question of which regime should be applied to such restrictions: an inadequatenational treatment obligation or an underdeveloped necessity test?

Conclusion

Articles XVI, XVII, and VI are the core provisions for liberalization under theGATS. Although each Article contains different obligations with different scope,in some cases they can overlap. This situation creates uncertainty with respect toboth the scope of individual provisions and the balance between liberalizationand the right of WTO Members to regulate. This paper analyzed the relationshipbetween these provisions in order to determine the regime that is most applicableto discriminatory and origin neutral measures that affect trade in services.

The relationship between Article XVI GATS and Article XVII GATS influencesthe scope of the non-discrimination requirement under the GATS: the same dis-criminatory measure may fall within the scope of both provisions, raising the ques-tion of which provision is applicable. The Panel in China–Electronic PaymentsServices held that in the event of an overlap or contradictory specific commitments,the market access column prevailed over national treatment, making Article XVI akind of lex specialis of Article XVII. This distinction has consequences for the scopeof the non-discrimination requirement under the GATS, as Article XVI is stricterand more demanding than Article XVII. The non-discrimination obligation canbecome more intrusive, depending on the extent of the overlap, which is determinedby the scope of measures listed in Article XVI. Beyond this list, discriminatory mea-sures fall within the scope of Article XVII. In US–Gambling, WTO adjudicatingbodies held that the Article XVI list is exhaustive and exclusive, thereby avoidinga broad, intrusive, non-discrimination obligation.

The interaction between Article VI and Article XVI, on the one hand, and ArticleVI and Article XVII, on the other hand, influence the fate of origin neutral measuresthat may fall within the scope of either. While the GATS itself is silent on this issue,events have supported the precedence of Articles XVI and XVII over Article VI.Therefore, the scope of Article VI is determined by the remit of Articles XVI andXVII.

With respect to Article XVI, US–Gambling found that the measures listed inArticle XVI:2 are exhaustive and that its subparagraphs are exclusive. At thesame time, the judges ruled that a total ban on online gambling services couldamount to a ‘zero quota’ within the meaning of a ‘numerical quota’ (ArticleXVI:2 (a) and (c)). This interpretation raised the question of whether the list of mea-sures in Article XVI:2 could include indirect quantitative restrictions. Such an

71WTO–WPDR (2012a).




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interpretation could lead to an extension of the scope of Article XVI and henceencroach on the purview of Article VI. More importantly, it could seriouslyaffect WTO Members’ regulatory autonomy. More recently, the Panel inArgentina–Financial Services, made it clear that the remit of Article XVI doesnot extend to indirect quantitative restrictions. Like many other commentators,this paper welcomes this interpretation, which is more consistent with finding abalance between trade liberalization and the preservation of the right to regulate.

With respect to Article XVII, the question of the scope of the prohibition of defacto discrimination remains unclear. According to the text of the GATS, it includesany origin neutral measure that modifies the conditions of competition in favor ofdomestic services and service suppliers compared to their foreign counterparts. Thiscould include a wide range of measures, as any measure affecting trade in servicesmay have the effect of modifying the conditions of competition. Moreover, themere existence of cross-border regulatory diversity represents a burden forforeign service suppliers. Various proposals have been put forward that aim to inte-grate the assessment of the regulatory objective in the less favorable treatment ana-lysis. In Argentina–Financial Services, the Appellate Body clearly ruled out anyinclusion of regulatory purpose in the less favorable treatment analysis, but didnot indicate the exact scope of the prohibition of de facto discrimination. As aresult, the scope of Article XVII (and incidentally the delimitation betweenArticles XVII and VI) remains unclear. However, taking a modification to the con-ditions of competition as the unique criteria could extend the scope of Article XVIIand potentially encroach on WTOMembers’ regulatory autonomy. Here, it is sub-mitted that the scope should be narrow, which would result in the necessity testplaying a significant role in Article VI. However, a meaningful test remains to bedeveloped as some Members have expressed strong opposition to its adoption invarious arenas.

Under the current regime, Members’ obligations regarding discriminatory mea-sures are clear. In contrast, obligations related to origin neutral measures affectingtrade in services are not. The issue is becoming increasingly important as barriers totrade in services are less discriminatory than origin neutral measures.72 Progresswill require a refinement of the scope of Articles XVI and VII. At the same time,it will demand the development of meaningful domestic regulation obligations(Article VI).73 While negotiations on the development of effective transparencyobligations appear to be well underway, the adoption of a consistent necessitytest remains at a crossroads.74

72World Trade Organization (2012).73WTO–WPDR (2012a).74Muller (2015).




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https://doi.org/10.1017/S1474745616000471


Troubled Relationships under the GATS: Tensions between ......the border while service suppliers and consumers do not. Mode 2 (Article I:2(b)) is the supply of a service ‘in the

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